Bill Summary
The "Employee Ownership Fairness Act of 2025" aims to amend the Employee Retirement Income Security Act of 1974 (ERISA) to enhance the benefits for participants in employee stock ownership plans (ESOPs). The bill recognizes that ESOPs not only serve as retirement plans but also empower employees by giving them an ownership stake in their companies. The legislation addresses a key issue where employees of successful companies often hit contribution limits on their retirement savings due to the growth of their ESOP balances.
The proposed amendments would allow ESOP participants to benefit from the full potential of their ownership without being penalized by contribution limits that typically apply to defined contribution plans. Specifically, the bill proposes to exclude employer stock contributions and loan repayments related to employer securities from these limits, allowing employees to make greater contributions to their retirement savings. Additionally, it clarifies that forfeitures in ESOPs will not count against annual addition limits.
Overall, the Act seeks to promote employee ownership, support retirement savings, and encourage economic growth by aligning the interests of workers and business owners. The amendments would take effect for plan years starting after the law's enactment.
Possible Impacts
The "Employee Ownership Fairness Act of 2025" could affect people in several significant ways. Here are three examples:
1. **Enhanced Retirement Benefits for Employees**:
Employees participating in Employee Stock Ownership Plans (ESOPs) may benefit from increased contributions to their retirement savings. The legislation allows for separate calculations of contributions and limitations for ESOPs and other defined contribution plans, meaning that employees can maximize their retirement savings without being penalized by the growth of their ESOP. This enhancement could lead to a more secure financial future for these employees as they save more towards retirement.
2. **Greater Financial Empowerment and Ownership**:
By explicitly recognizing ESOPs as a mechanism that empowers workers to gain ownership in their companies, the legislation promotes a culture of employee ownership. This could lead to higher levels of job satisfaction and loyalty among employees as they have a direct stake in the success of their workplace. The financial benefits tied to the performance of the company may encourage employees to contribute positively to the company’s growth and success, thus fostering a more collaborative workplace environment.
3. **Increased Access to Retirement Savings Diversity**:
The amendments will enable employees to diversify their retirement savings beyond just their ESOP contributions. With the new rules, employees can participate in additional retirement plans without the constraints previously imposed by contribution limits. This diversity in retirement savings options can help employees manage risk more effectively, allowing for a better-balanced portfolio and potentially leading to greater overall retirement wealth.
These examples illustrate how the legislation is designed to promote employee ownership and enhance retirement security for those involved in ESOPs, ultimately helping to create a more equitable and supportive work environment.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1727 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 1727
To amend the Employee Retirement Income Security Act of 1974 to permit
employee stock ownership plan participants to benefit from the full
amount of beneficial ownership that can be accrued in the plan while
also fully realizing the benefits of saving for retirement in a defined
contribution plan.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 13, 2025
Mr. Cassidy introduced the following bill; which was read twice and
referred to the Committee on Health, Education, Labor, and Pensions
_______________________________________________________________________
A BILL
To amend the Employee Retirement Income Security Act of 1974 to permit
employee stock ownership plan participants to benefit from the full
amount of beneficial ownership that can be accrued in the plan while
also fully realizing the benefits of saving for retirement in a defined
contribution plan.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Employee Ownership Fairness Act of
2025''.
SEC. 2. FINDINGS.
Congress finds as follows:
(1) While Congress permitted the creation of employee stock
ownership plans (ESOPs) in the Employee Retirement Income
Security Act of 1974, these plans are not just a retirement
plan for their participants.
(2) The legislative history of ESOPs indicate that ESOPs
were intended to help the economy at a time when bank financing
was difficult for companies to obtain, with the Joint Committee
on Taxation categorizing the ESOP provisions of the Tax Reform
Act of 1984 as ``Incentives for Investment and Continued
Economic Growth''.
(3) ESOPs empower workers to gain ownership of their
enterprise, thereby aligning the incentives for owners and
workers and affording workers an economic stake in the
company's success.
(4) ESOPs serve as a mechanism of finance whereby workers
who otherwise would not have the means can acquire the
businesses where they work.
(5) ESOP employees who run successful, profitable companies
are often unable to make full use of their defined contribution
plans as a result of their company's success accruing to their
ESOP balance, thereby causing their other plan contributions to
exceed the annual cap.
(6) Unlike defined contribution plans where the amount
contributed is determined by the employee, ESOP contributions
reflect growth in the company and its value rather than planned
contributions by the employee or employer. This is why the vast
majority of ESOPs also sponsor a defined contribution plan,
such as a qualified cash or deferred arrangement under section
401(k) of the Internal Revenue Code of 1986, which facilitates
the diversification of workers' retirement savings.
(7) Sections 404 and 415 of the Internal Revenue Code
impose limits on benefits and contributions under qualified
retirement plans. These limits impede the ability for ESOP
employees to diversify their retirement savings and make their
own retirement savings contributions and often require their
employers to deny matching contributions they would otherwise
receive.
SEC. 3. ESOP AMENDMENTS.
(a) ERISA.--Subtitle B of title III of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1221 et seq.) is amended by
adding at the end the following:
``PART 3--SPECIAL RULES FOR EMPLOYEE STOCK OWNERSHIP PLANS
``SEC. 3033. SPECIAL RULES FOR EMPLOYEE STOCK OWNERSHIP PLANS.
``For purposes of the Internal Revenue Code of 1986, with respect
to an employee stock ownership plan (as defined in section 407(d)(6))--
``(1) for purposes of applying section 404(a)(3)(A) of the
Internal Revenue Code of 1986, the contributions taken into
account for purposes of clause (i) thereof shall not include--
``(A) contributions of employer stock; or
``(B) contributions made to repay loans used to
acquire employer securities;
``(2) the limitations of section 404 of such Code shall be
applied separately to such plan and any other defined
contribution plan of the employer;
``(3) in determining annual additions under section
415(c)(2) of such Code, employer contributions under
subparagraph (A) thereof are determined without regard to--
``(A) contributions of employer stock; or
``(B) contributions made to repay loans used to
acquire employer securities; and
``(4) for purposes of section 415 of such Code, forfeitures
allocated to accounts under the plan shall not be taken into
account as annual additions (as defined in section 415(c)(2) of
such Code).''.
(b) IRC.--
(1) In general.--Subparagraph (A) of section 404(a)(3) of
the Internal Revenue Code is amended by adding at the end the
following new clause:
``(vi) Exception for esops.--In the case of
an employee stock ownership plan (as defined in
section 4975(e)(7)), the contributions taken
into account for purposes of clause (i) shall
not include--
``(I) contributions of employer
stock, or
``(II) contributions made to repay
loans used to acquire employer
securities.''.
(2) Separate determination of limitations.--Subsection (a)
of section 404 of the Internal Revenue Code is amended by
adding at the end the following new paragraph:
``(13) Separate determination for esops.--In the case of an
employee stock ownership plan (as defined in section
4975(e)(7)), this section shall be applied separately to such
plan and any other defined contribution plan of the
employer.''.
(3) Determination of annual additions.--The second sentence
of paragraph (2) of section 415(c) of the Internal Revenue Code
is amended--
(A) by striking ``457(e)(16)) without regard'' and
inserting ``457(e)(16)) and without regard'', and
(B) by inserting ``, and in the case of an employee
stock ownership plan (as defined in section
4975(e)(7)), employer contributions under subparagraph
(A) are determined without regard to contributions of
employer stock or contributions made to repay loans
used to acquire employer securities'' before the period
at the end.
(4) Special rule.--Section 415 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsection:
``(o) Special Rule for ESOPs.--In the case of an employee stock
ownership plan (as defined in section 4975(e)(7)), forfeitures
allocated to accounts under the plan shall not be taken into account as
annual additions.''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after the date of the enactment of this
Act.
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